Emerging Markets Test Resistance, Chinese Stocks Starting to Lead

Emerging market stocks moving up toward overhead resistance, as potential for stimulus in Chinese has kept a floor under these equities bourses. The weekly bars show Emerging Markets iShares (EEM) ending the week above their October intra-day high (43.52), but still below their December 2012 intra-day peak at 44.35. With bond yields around the world dropping, and concerns that some developed stock markets may be overbought, global money continues to rotate into emerging markets.

The BRIC countries (Brazil, Russia, India, and China), have been the recent leaders. The MSCI BRIC iShares (BKF) in the process of challenging initial overhead resistance formed last October. The BKF is also testing a trend line drawn over its 2012/2013 highs. A decisive close above those two lines would represent a bullish breakout in the four biggest emerging markets.

Chinese stocks carry the biggest weight in the BRIC ETF at 40% and, therefore, carry the most influence. The daily bars show China iShares (FXI) climbing above the April peak at 37.40 this week and trading at the highest level in 2014. It is also trading well above its 200-day moving average. The FXIEEM ratio is starting to rise as well. That means that China is starting to lead emerging markets higher after lagging behind during most of the first half. The weekly bars show the FXI moving up toward a resistance line drawn over its 2013 highs. That will be a very important test for it and emerging markets in general.

Russia has the smallest weight in the BKF, but it can’t be ignored. Tensions in the Crimea and Ukraine pushed Russian shares sharply lower during the first quarter. The weekly bars however, show the Market Vectors Russia ETF (RSX) climbing to the highest level in five months.

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